Workers in the dark over pensions

Up to ten million people will be paying into a pension for the first time over the coming years following the launch last year of automatic enrolment, a scheme that aims to tackle low savings levels by putting the onus on individuals to opt out.

But Scotland on Sunday has learned that many workers north of the Border remain unaware of changes that will see some of their pay diverted into a pension.

Under plans that took effect almost a year ago, employees aged 22 and over and earning between £9,440 and £41,450 a year are automatically enrolled into their employer’s pension scheme or, if it doesn’t have one, new schemes such as the National Employment Savings Trust (Nest).

The UK’s biggest employers were the first to introduce automatic enrolment when it went live last October. Fewer than one in ten workers have opted out so far, according to consultants Towers Watson, easing fears of an opt-out rate closer to 30 per cent.

Now medium and small-sized employers are approaching what’s known as their “staging date”. By January, employers with as few as 350 eligible workers will have to comply with the rules, while a year from now it will open up to those with 61 or more eligible employees.

However, industry insiders warn that opt-out rates could soar at smaller firms amid fears that many are failing to communicate the changes to staff or put plans in place.

Of 1.6 million workers in the private sector in Scotland, 78 per cent are eligible for automatic enrolment. Of those, just 45 per cent are already saving in a workplace pension, according to Nest.

But research by The Pensions Regulator (TPR), which is investigating 89 large firms that have fallen short of the new rules, shows that fewer than three in ten of the employers hitting their staging date next April have drawn up plans and begun to act on them.

In Scotland nearly four in ten employees still don’t know about automatic enrolment, according to new research by Scottish Widows.

Tom Munro, owner of Tom Munro Financial Solutions in Larbert, said he was not surprised by the findings.

“I have experienced a high level of apathy with regard to auto-enrolment from employers,” he said. “Comments such as ‘I know we have to set up a pension scheme for employees but they can opt-out again’ are fairly frequent.”

The minimum employee contribution under automatic enrolment starts at 1 per cent of earnings, rising to 3 per cent by 2018. By that point employers will be adding a minimum of 3 per cent to their employees’ pension pots, topped up by a 1 per cent government contribution in the form of tax relief.

But there remains a wide gap between the amount that Scots already in workplace pensions are paying into them and the level of income they want in retirement.

The average Scottish member of a workplace defined contribution scheme (into which most private sector members pay following the demise of final salary schemes) contributes £138 a month, according to new figures from Scottish Widows.

Employer contributions and non-pension savings take average monthly savings to £399, which would produce an annual pension income of £14,200 (including state pension payments) – over £600 short of the £24,500 a year that the average Scot expects in retirement.

And the amount that people are prepared to set aside each month has plunged from £67 to £51 a month over the past year.

Nearly six in ten Scots believe their employer should provide more general information about planning for retirement and 39 per cent want them to provide full financial advice.

Lynn Graves, head of business development, corporate pensions at Scottish Widows, said: “Auto-enrolment is a vital tool for improving savings behaviours, but it cannot work in isolation to change the nation’s attitudes to retirement.

“The pensions industry, government and employers have to educate the Scottish workforce about the importance of saving adequately for retirement, and how their workplace pension scheme can help them to be comfortable in old age.”